Prime Minister Julia Gillard is expected to announce a deal that will lead to childcare workers’ pay in effect being subsidised by the budget amid increasing tensions within the federal government about its unfunded spending spree.

Ms Gillard is expected to meet today with the United Voice union, which represents childcare workers, amid signals cabinet has signed off on a deal said to be worth $1.4 billion a year for the sector.

Shadow treasurer Joe Hockey told the Coalition party room he believed Labor faced a revenue shortfall of $20 billion to $25 billion, largely due to a fall in company tax receipts and lower commodities prices.

Mr Hockey claimed the government planned to move the mid-year budget update forward from late November or early December so that some of the costs of its policy announcements were not included in the economic update.

Against a backdrop of European economic decline, difficult circumstances in the US and China’s economy slowdown, Mr Hockey said the Coalition would not make any rash economic promises. The Prime Minister held a crisis summit with the childcare sector in June – amid rocketing fees – at which a range of possible forms of government support were canvassed, including paying childcare centres directly in exchange for moderated fee rises, creating a single childcare payment and subsidising staff pay.

Some senior Labor figures yesterday privately accused Ms Gillard of making a deal to help shore up union support for her leadership.

Other MPs have questioned why the budget will subsidise childcare workers while cutting single parent benefits and not increasing veterans’ entitlements.

Mr Swan faced questioning in the weekly caucus meeting from five MPs concerned about the government’s plans.

Senator Cameron called on the Treasurer to consider broadening the tax base to pay for some of Labor’s promises and quoted the Treasurer’s weekly “economic note” back to him on the fall in the ratio of tax to gross domestic product.

Senator Cameron linked his call for a tax rise to concerns about job losses in the federal public service and cited Germany as an example of a country with higher taxes and well-funded infrastructure and services.

Finance Minister Penny Wong signalled yesterday that the government would seek to protect public service jobs from budget cuts.

“We will make responsible and measured savings to target resources to where they are most needed and will continue to look for non-staffing savings as a priority,” she said.

Mr Swan batted away Senator Cameron’s suggestion of raising taxes, arguing Australia didn’t want taxation at German levels and that the country needed to be competitive in the Asia-Pacific region on the tax front while maintaining good services and infrastructure.

Mr Hockey then took up the attack in question time, asking Mr Swan to rule out using funds from the budget to pay a multibillion dollar wage subsidy for workers in the childcare sector who are not even employees of the federal government.

The Treasurer said he would not rule anything in or out when it came to budgets.

Labor has outlined a series of big-ticket policy promises in recent months, including a National Disability Insurance Scheme costing $2 billion in 2013-14 and up to $10.5 billion in 2018-19; a $4 billion, two-year dental care package from 2013-14; and changes to school spending that may eventually cost $6.5 billion annually.

The Australian Financial Review

BY Laura Tingle

Laura Tingle, The Australian Financial Review's
political editor, has worked in the parliamentary press gallery in
Canberra for more than 25 years. Laura has won two Walkley awards and
the Paul Lyneham Award for Excellence in Press Gallery Journalism and
has also been highly commended by the Walkley judges for
investigative reporting.

BY Laura Tingle

Laura Tingle, The Australian Financial Review's
political editor, has worked in the parliamentary press gallery in
Canberra for more than 25 years. Laura has won two Walkley awards and
the Paul Lyneham Award for Excellence in Press Gallery Journalism and
has also been highly commended by the Walkley judges for
investigative reporting.